203k Loan
The 203k is a Federal Housing Administration (FHA) mortgage insurance program.
Homeowners can finance both the rehabilitation and the purchase of the particular home in a single mortgage loan.
Section 203k is one of the many FHA programs that insure mortgage loans. Homebuyers in need of immediate rehabilitation of the property will find it very hard to find conventional financing for a home that needs immediate rehabilitation. They will also find it hard to find specific financing after the purchase of the home and if they do it may be at very high-interest rates. The FHA 203k program is a unique program that creates a great solution to these specific issues. Additionally, the program helps revitalize and rehabilitate homes that may be considered in disadvantaged neighborhoods.Homeowners can finance both the rehabilitation and the purchase of the particular home in a single mortgage loan.
What does it mean for the consumer?
The buyer can finance the repairs AND the cost of the home in one loan.
What are the credit standards for FHA 203k loans?
Typically the 203k program requires high credit standards, previous mortgage rates or defaults will typically disqualify you for this type of loan.
How do you know if the house qualifies for a 203k loan?
The home must qualify under the FHA guidelines. Foreclosed, short sales and homes in need of major repairs are the normal candidates for 203k FHA loans. Speak to a 203k licensed specialist to see if the home of interest is qualified.
What is an FHA 203k Loan?
203k FHA 203k loans simplify the home renovation process by allowing you to borrow money for your home purchase and home renovation costs using only one loan. FHA 203k loans are backed by the federal government and are a great loan option for those who want to purchase a home and perform upgrades, repairs, remodel or customize to their needs and wants. A renovation loan lets you stay in your current home and neighborhood, learn more about how you can get the home of your dreams!
203k Mortgage Loan Requirements
A minimum credit score of 600, Minimum 3.5% down payment, Property must meet eligibility requirements, Borrower must meet all other FHA program requirements.
Eligible FHA 203k Home Repairs
The homebuyer can use the FHA 203k program to finance repairs of anything from painting, to deck replacement, to room additions. Improvements can be made, even if the home does not necessarily need them to be livable.
Why choose the FHA 203k Loan?
Many banks will simply deny a loan if the subject property is not in perfect condition, but that is not the case with the FHA 203k program. Do not walk away from your potential dream home over a fear of renovations and a little extra paperwork.
FHA 203k vs Homestyle Loans
The two most well-known renovation loan programs are the FHA 203k and Homestyle Renovation programs. 203k is an FHA program, while Homestyle Renovation is a Conventional program.
I’m interested in an FHA 203k Mortgage Loan
Frequently Ask Questions
If you have a question that deals with clients, customers or the public in general, there is bound to be a need for the FAQ page.
Is an FHA 203(k) Loan Right For Me?
If you plan to purchase a fixer-upper or need to make improvements to your existing home, an FHA 203(k) loan may be the perfect rehab loan for you. Combining the renovation costs with your home mortgage with an FHA 203(k) loan gives you one loan with one payment for both your mortgage and renovation.
In addition to a low down payment of 3.5%, the eligibility terms of an FHA 203(k) loan are more flexible. Other general eligibility and loan features include:
Have at least a 620 FICO.Do not need to be a first-time homebuyer in order to be eligible.
If your renovation is extensive and you cannot live in the home during construction, you may be able to finance up to six months of mortgage payments during renovations if the home is deemed uninhabitable by the HUD Consultant.Maximum loan amount under a 203(k) purchase loan, is 96.5% of the after-improved value¹. For refinancing, the maximum loan amount is 97.75 percent of the after-improved value.² To check the current loan limits by county, visit http://entp.hud.govAlthough some restrictions and special rules apply, 203(k) loans can be used to purchase and refurbish condos³, two-to-four unit properties⁴, and mixed-use properties, in addition to single-family residences and homes in planned unit developments.
How Does the 203(k) Loan Work?
While the requirements for the borrower for regular FHA loans and 203(k) loans are the same, the appraisal process is different.
Two values are assigned to the property – an as-is value, and an after-improvement value that takes into account the planned repairs.
Your final loan amount is derived from the after-improvement value.
The property then closes escrow in as-is condition with no money up front.
At this point, the lender typically has a list of planned repairs for the property.
The renovation funds are then given in phases and draws – or predetermined, scheduled amounts based on construction progress. In other words, the builder requests draws for each phase of new home construction.
The renovation Mortgage Loan Originators at Mortgage Fast are committed to providing personalized service to you. From helping you understand the difference between a home construction loan and home improvement loan to answering your questions, we can explain the program and how it can fit your needs.
What are the FHA 203(k) Mortgage Loan Limits and Options?
There are actually two types of 203(k) loans: the Limited K and the “Standard” Consultant K.
The Limited 203(k) loan was specifically created for homes that do not have structural or foundational problems.
If your home can be remodeled, repaired, or updated for less than $35,000, the Limited K may be right for you.
Minor home improvements are covered:
No structural or luxury improvements.
Repairs must start within 30 days of your loan closing, and must be finished within six months.
The Consultant K – This loan is for homes needing structural repairs or will require work in excess of $35,000.
Bigger projects like room additions and extensive renovations
Minimum loan amount of $5,000. Maximum loan amount is based on the home’s after-improved value.¹ & ²
If you choose the Consultant K loan, your mortgage lender will require you to work with a HUD-approved 203(k) consultant who will inspect and evaluate your renovation.
For more differences between the two, please visit our FHA Limited 203(k) vs. “Standard 203(k)” Consultant K loan page.
Which projects qualify for a 203k Mortgage loan?
Finally, it’s important to understand which projects qualify for 203(k) financing. First, if the property isn’t your primary place of residence, you won’t qualify. Here are some of the many home improvements that you can finance with a 203 (k) loan:
As far as projects go,
Room additions
Kitchen and bathroom upgrades or renovation
Energy efficient upgrades
Plumbing and electrical upgrades
Weather stripping and insulation upgrades
Disability improvement
Basement completion and waterproofing
Landscape improvements
Removal of lead-based paint
New roofing, flooring, windows and doors
The above content is for general informational purposes only. For a complete list of qualifying improvements, please speak with a Mortgage Fast Mortgage Loan Originator.